Understanding the value of your business could help you decide if you should invest in new equipment, find a partner, or secure investment dollars. It can also provide you with a benchmark for your company’s financial performance and let you compare it with other companies in the same field.
To determine the worth of a business, add up all the assets like property and inventory, then subtract any debts or liabilities. This approach may be an ideal starting point but it’s important to remember that your business is much more than its assets and liabilities.
You can use the market method to arrive at an accurate estimate. This method is based on recent sales of similar businesses. This method uses seller’s discretionary earning, or SDE. It is similar to EBITDA but adds in things like employee outings and charitable donations.
A multiple of annual sales can be used as a way to evaluate revenue. The amount of money you earn can be different according to the market and trends, and an experienced business adviser or broker can provide guidance on what’s appropriate for your particular business. It’s important that you update your calculations regularly and consult a professional appraiser to get the most accurate picture of your company’s value. They can also assist you to prepare for a possible acquisition or sale of your company.